Thursday, March 29, 2007, 3/29/2007 12:12:00 PM

We earlier reported about this case here. The court has issued a 20-page opinion, certainly to the dismay of the automobile industry, that this case will proceed with an item-by-item analysis of information the industry claims constitutes "trade secrets" and the court will apparently rule on those issues as they arise.

The Burlington Free Press is reporting that industry attorneys likely will be able to demonstrate that some pieces of evidence they wish to present are trade secrets. But Judge Sessions flatly rejected claims that those secrets automatically deserve confidentiality during otherwise-open court proceedings.

"There is no absolute right to protect trade secrets from disclosure," Judge Sessions wrote. The judge also rebuffed the industry's suggestion that its lawyers would redact portions of exhibits and transcripts. If necessary, Sessions wrote, that task would fall to the court.

Sessions did note, however, that restrictions on open courts at times are appropriate. Protection of trade secrets may have a higher value than a qualified right of access under the First Amendment in certain cases and under certain circumstances," the judge wrote.

The ruling does not guarantee unfettered access to the trial. Judge Sessions must determine on an item-by-item basis whether trade secrets exist and then weigh the interest in keeping them confidential against the presumption of openness. Judge Sessions ordered industry attorneys to furnish him with copies of "each item for which they seek protection from disclosure at trial, the portion that they wish redacted or sealed, along with an explanation of the information's value to the company and/or its competitors, and the extent to which the information is available or known outside the company."

The court scheduled a hearing for Monday to discuss the issue further. It was unclear Friday (March 23rd) whether the industry would appeal. Charles Territo, a spokesman for the trade group Alliance of Automobile Manufacturers, said the plaintiffs were evaluating the decision and would withhold comment until Monday. "We're still in the process of reviewing it," he said. "If we have anything to say about it, we'll say it at the hearing."

Wednesday, March 28, 2007, 3/28/2007 04:36:00 PM

The foreward to this release, published today, declares "The United States faces substantial challenges to its security, freedom, and prosperity." Heady stuff. Of particular interest to this blog's readers will be the section, beginning on page 4 of the release, regarding the protection of U.S. economic advantage, trade secrets and know how.

The release provides that "We must assist in the identification and protection of the nation's vital assets that reside in myriad elements of the US government, the private sector, and academia, and whose significance may be unknown even to those who control them. Collaboration between these parties and counterintelligence, law enforcement, and security officials is crucial to identify those targets of interest to our nation's adversaries. It is also crucial to identify information that, if known to an adversary, would probably be targeted and the loss or compromise of which would be damaging to the nation's security. Counterintelligence elements will work with law enforcement and security to develop, sustain, and leverage knowledge of our adversaries' strategies, collection priorities, intentions, and technical needs, and we will translate this knowledge into proposed collection requirements. We will also provide threat information and warning to vital asset owners, include those outside the US government."

This release is a fascinating read and suggests the federal government and law enforcement is interested in partnering with US companies to ensure that intellectual property assets that are ours remain ours. We will continue to monitor the responses to this release for our readers.

Speculations on Joint Civil/Criminal Nature of Oracle's Allegations Against SAP

Portfolio Media is reporting that a lawsuit filed by business software maker Oracle Corp. accusing German competitor SAP AG of wide-scale corporate theft could prompt criminal and civil actions against the company or “rogue” individuals acting on their own behalf. Based on Oracle’s 43-page complaint alleging that SAP illegally accessed its computers to steal thousands of Oracle software products and proprietary materials, SAP could face not only civil liability, but also criminal liability, according to analysts on Tuesday.

“It will be interesting to see whether the facts – if proved true – show this conduct was perpetuated by rogue individuals in SAP or individuals in management of the company. The complaint suggests there may be corporate liability in addition to personal liability,” said Scott Christie, a former U.S. prosecutor who investigated computer crimes. Rogue individuals, he explained, act on their own without the authority of the company.

Oracle’s suit was lodged in the U.S. District Court for the Northern District of California last week after Oracle allegedly learned that SAP was illegally accessing and stealing from Oracle’s computerized customer support systems. Christie, who is an IP and IT partner at McCarter & English LLP, said the complaint claims that the conduct has been going on for a substantial period of time, involves proprietary information and has led to significant losses for Oracle – the types of allegations that often peak the interest of federal prosecutors.

“The potential for criminal corporate liability exists and just depends upon what evidence Oracle shows,” he said. Christie added that a complaint showing evidence of illegal conduct is all federal prosecutors in San Francisco or Texas need to jump-start their own investigation. Scot Braunzell, head of cyber security for consulting firm Risk Control Strategies, agreed that the allegations could lead to a criminal investigation.“Companies don’t bring these types of complaints unless they have empirical forensic data. From what I’ve seen, it looks like Oracle has this legal information, which must be gathered in a strict manner to become a criminal case,” Braunzell said.

In the latest skirmish between the bitter rivals, Oracle accused SAP of gaining “repeated and unauthorized access, in many cases by use of pretextual customer log-in credentials, to Oracle’s proprietary, password-protected customer support Web site.” The company said its German competitor had compiled an illegal library of Oracle’s copyrighted software code and other materials, creating a “storehouse of stolen Oracle intellectual property” that allowed SAP to offer cut-rate support services for customers who use Oracle software. SAP also used the copied software to attempt to lure customers to SAP’s applications software platform and away from Oracle’s, the complaint said. The two companies are staunch rivals in the multibillion-dollar market for business applications software.

The complaint raised the question of why SAP would risk engaging in this alleged conduct.“You don’t go and attack your biggest competitor. SAP is a market leader, and from what I can see from the complaint, it was not gathering enough IP to gain any type of large market advantage over Oracle. Why would SAP do this in the first place?" Braunzell asked. He said rogue employees may be involved who were not acting under any management guidelines, but he also brought up the issue of access control. In late November, Oracle noticed unusually heavy download activity on its systems that contrasted with the authorized, limited access to which its customers were entitled. Oracle claimed that SAP hijacked log-in credentials with expired support rights and copied thousands of individual software and support materials.“If the log-ins were expired, why were individuals allowed to log in? A lot has to come out from a forensic standpoint,” Braunzell said.

Among the claims made against SAP were violations of the Federal Computer Fraud and Abuse Act and California Computer Data Access and Fraud Act, unfair competition, intentional and negligent interference with prospective economic advantage and civil conspiracy. Oracle sought to stop and prevent SAP from using illegally acquired materials, as well as damages and attorneys' fees, according to the lawsuit. In response to the suit, SAP said it intended to aggressively fight the corporate theft allegations.

Tuesday, March 27, 2007, 3/27/2007 08:49:00 AM

The case claims that SAP used the access codes of its customers to gain access to Oracle's servers and then download copyrighted material. It further alleges that the company kept a large library of Oracle's property on its own servers. If true, this could be very bad.

This one has been reported everywhere (an analysis from New Zealand is here.)

Friday, March 23, 2007, 3/23/2007 08:46:00 AM

A Friday homage from the Louisville Courier-Journal in the form of the obituary of Neal Thompson, 83, who invented a chicken fryer and then spent the rest of his life suing Kentucky Fried Chicken for stealing his trade secrets and violating his patent.

According to the story, "Thompson patented an automatic fryer he called the Thompson Pulse-Purge Cooker in 1971 that speeded up the cooking time and reduced the amount of grease absorbed by the food."

Thompson claimed in litigation that KFC offered to buy the cooker, but instead put off the deal and began using Thompson's trade secrets while misleading him about possible future deals from 1971 to 1984. Thompson fought all the way to the U.S. Supreme Court, which in 1994 let stand lower court rulings in favor of KFC, saying that Kentucky's five-year statute of limitations had expired when Thompson filed the suit in 1985.

Tuesday, March 20, 2007, 3/20/2007 01:37:00 PM

From the Boston Globe, a story concerning delays in a federal case brought by automobile manufacturers and dealers who contend that Vermont lacks authority to regulate vehicle emissions.

According to the story:

The trial was postponed after U.S. District Judge William Sessions III heard arguments centered on the auto interests' desire to seal certain documents and close the courtroom to the public during some witnesses' testimony because of trade secrets that would be revealed. The Burlington Free Press, which opposes the motions, is seeking to intervene in the case in hopes of keeping the proceedings open.

As always, there are consequences to filing lawsuits that might relate to things you'd just as soon keep secret.

Again according to the Globe:

In a lengthy question-and-answer session with Clubok [the industry attorney], Sessions said it was problematic for the auto interests to claim economic harm without being available to answer questions about finances, production costs and other elements that they contend are private.

"You're making a strong argument that you'll be devastated," Sessions said. "When you make that particular argument, you open the door to [defendants' attorneys] saying 'Prove it. Prove that these regulations would cost you so enormously.'"

Monday, March 19, 2007, 3/19/2007 12:28:00 PM

Although not technically a trade secrets policy, a corporate policy that required employees of Cintas Corp. to maintain the confidentiality of information about the company and its workers interfered with the rights of employees under the National Labor Relations Act to discussthe terms and conditions of their employment, the District of Columbia Circuit holds (Cintas Corp. v. NLRB, D.C. Cir., No. 05-1305, 3/16/07).

The Cintas handbook "confidentiality" policy in question read: "We honor confidentiality. We recognize and protect the confidentiality of any information concerning the company, its business plans, its partners, new business efforts, customers, accounting and financial matters." The Cintas handbook also contains a disciplinary provision that could apply to violations of this confidentiality policy.

On review, the NLRB board affirmed the administrative law judge’s decision, saying an employee could reasonably interpret the handbook’s language to mean they didn’t have the right to discuss the terms of their employment. The board thus ordered Cintas to either rescind the disputed language or distribute revised handbooks with the appropriate substitutions. Upholding the ruling of the National Labor Relations Board, the court agrees that Cintas committed an unfair labor practice under the NLRA simply by publishing its policy on confidentiality, even though the rule did not expressly forbid protected discussions, and even though there was no evidence that the rule was used to prohibit legally protected activity.

This decision is sure to get some heavy press from the labor & employment bar.

Saturday, March 17, 2007, 3/17/2007 07:08:00 PM

From the San Diego Union Tribune, a report on the conclusion of the Qualcomm-Broadcom trade secrets and patent litigation which we've reported extensively here and here (and other places too).

The cases end with a settlement and withdrawal of both parties' trade secrets claims.

According to the story, "claims that were dismissed in the settlement include Broadcom's allegations that Qualcomm infringed on six of its patents, Qualcomm's allegations that Broadcom infringed on four of its patents and both companies' accusations of misappropriation of trade secrets."

One analyst, Michael Cohen, director of research for Pacific American Securities, is reported as saying "it seems like Qualcomm may have given up more than it got in return."

Not surprisingly, though, the companies are continuing to fight on other fronts.

Friday, March 16, 2007, 3/16/2007 02:00:00 PM

It's a slow Friday in the trade secrets world but we thought you might be interested in the FBI's report released today regarding their internet crime statistics. We found the gender stats - that men commit almost 75% of all internet crimes - particularly interesting. We are also befuddled by the stats on "Nigerian letter fraud" - averaging $5100 per occurrence - and conclude P.T. Barnum perhaps had it right when he is alleged to have said "there's a sucker born every minute . . . and two to take 'em." Ugh.

Enjoy your weekend - and ignore the Nigerian King's nephew's internet entreaty for you to send him $5100 to release $1 billion in secured naira.

Thursday, March 15, 2007, 3/15/2007 08:43:00 AM

From the San Jose Mercury-News, the denouement of the case by the California Attorney General against former HP chairman, Patricia Dunn, as well as a former company lawyer and two private investigators. The case arose out of elaborate attempts to track down a mole on the company's board of directors who was leaking internal information to the press. We've reported extensively on the case, including most recently here.

Under a deal reached with the AG, all charges against Dunn were dropped. As for the three others, according to the Mercury-News:

"The deal would effectively clear the three co-defendants of legal wrongdoing, which protects the professional licenses of former HP attorney Kevin Hunsaker and private investigators DeLia and Matthew DePante of Florida, said Thomas Lagod, an attorney for DePante. The deal requires each of them to perform 96 hours of community service and provide restitution to victims, in a manner still to be worked out."

The judge, instead of accepting the guilty pleas, took them under submission stating that they would be dismissed on the condition that the defendants perform the required community service and restitution.

This resolves the state court case. A federal case, however, still looms.

Friday, March 09, 2007, 3/09/2007 08:04:00 AM

A new case from the Middle District of North Carolina demonstrates something of a worst-case scenario for those accused of stealing trade secrets. Judge Beatty's opinion on a motion for preliminary injunction orders that the corporate defendants "are to be officially closed until the final resolution of this case, without any operations continuing at their facilities."

Defendants are plaintiff's former marketing, sales and distribution agents in the United States for eleven years. When that relationship ended, defendants went into the business for themselves, selling a similar tool made up of a sanding tool body to which rubber base elements and sanding caps are attached.

At issue as trade secrets was plaintiff's electronic library containing precise specifications for how to manufacture those sanding tools for each of its individual customers' designs.

The court found that library to constitute trade secrets since it was created at significant cost over the course of fifty years and was protected by a unique computer login and pass-code. And, even though the designs originated with customers, they were still protectable as customer preferences.

The court found misappropriation based on defendants' knowledge as the former agents, evidence indicating that they had accessed and used the information, and, importantly, one of the defendant's invocation of his fifth amendment rights in lieu of testimony.

The court's harsh decision seems to be in part motivated by the fact that defendants violated the court’s temporary restraining order.

Thursday, March 08, 2007, 3/08/2007 09:42:00 AM

As discussed in an earlier post today, Iowa-based Horizon Ethanol LLC has accused two former employees of spilling trade secrets and breaching their confidentiality agreements by joining a competing ethanol producer in Colorado. Horizon, Broin and Associates and Broin Management LLC filed a federal lawsuit on March 1, accusing former operations manager Gary T. Hanson and former maintenance technician Robert A. Akers of violating their non-compete and non-disclosure agreements. The agreements stated that the employees could not work for a competing business for two years after terminating their Horizon employment and could not disclose confidential information.

Portfolio Media is reporting Hanson worked at Horizon from Jan. 10, 2006 until Dec. 18, 2006, when he voluntarily resigned. Akers resigned on Jan. 22, 2007 after working for the energy company since Feb. 17, 2006. Horizon said they are now working at Sterling Ethanol. Summonses were served to the two employees at Sterling Ethanol’s plant on March 3. Horizon is seeking an injunction enjoining Hanson and Akers from working at Sterling Ethanol and disclosing trade secrets. Horizon is also seeking damages, including punitive damages, and disgorgement of the defendants’ income.

Horizon said that Hanson and Akers had intimate and extensive knowledge of Broin and Associates’ confidential ethanol-production technology and management techniques. Broin, which has built more than 25 ethanol plants, contracted with Horizon to build and manage the plant in January 2005. Broin licensed technology as well as design and operational information on the ethanol facility to Horizon, which signed a confidentiality and non-disclosure agreement prohibiting Horizon from disclosing the information. Horizon required its employees to sign binding non-compete agreements and non-disclosure agreements. Broin said it has developed technologies that produce ethanol in a more efficient and economic manner than others in the industry. Broin also said it has implemented management and operational techniques which constitute trade secrets since they have helped its ethanol plants become some of the most profitable plants in the ethanol industry.

The Horizon Ethanol plant near Jewell, Iowa was completed in March 2006. The plant has a production capacity of 60 million gallons of ethanol per year. Broin Management LLC operates and manages about 20 ethanol plants. Ethanol is a clean-burning fuel that is produced by crops such as corn and blended with gasoline to decrease fuel costs and harmful emissions.Horizon Ethanol LLC, Broin Management LLC, and Broin and Associates Inc. are represented by Nyemaster Goode West Hansell & O’Brien PC.Representation for Hanson and Akers was not immediately available. The case is Horizon Ethanol LLC et al v. Gary T. Hanson and Robert A. Akers, case number 3:07-cv-03017-MWB in the U.S. District Court for the Northern District of Iowa.

From the Des Moines Register, a story about a lawsuit by ethanol plant operator, Broin and Associates, against two former employees who left Broin in Iowa to go to work for a competitor's ethanol facility in Colorado.

The two defendants are a former operations manager and a former maintenance technician.

According to the complaint, the employees were privy to Broin licensed technology which included trade secrets, formulas, research data, processes, know-how, and specifications related to Broin and Associates' design and construction of the ethanol facility.

The two went to work for Sterling Ethanol in the last several months.

The lawsuit, filed in federal court in Iowa, seeks an injunction and other relief.

According to the Register, the suit itself is an indication of just how competitive the ethanol business is becoming.

Wednesday, March 07, 2007, 3/07/2007 07:48:00 AM

From MarketWatch, a report on a new study which argues that the FDA should provide more public access to safety data from clinical trials of the drugs it approves.

The study by a group of researchers at Harvard and elsewhere concludes that allowing more access to the data would provide independent researchers greater opportunity to scrutinize potentially dangerous side effects of the new drugs.

Pharmaceutical companies, somewhat predictably, are concerned that release of such information threatens their trade secrets.

According to Dr. Aaron Kesselheim, the study's co-author, "the information is not made fully public because the pharmaceutical industry considers it trade secrets."

Under the current regime, the FDA only releases to the public summary safety data and not the actual data.

The study appears to be more in the continuing pressure of drug companies to make clinical trials data publicly available and trade secrets be damned.

Tuesday, March 06, 2007, 3/06/2007 09:34:00 AM

Raytheon Files Trade Secrets Suit Against Rival Flir Systems

Military contractor Raytheon Corp. has filed a lawsuit against Flir Systems, a major rival, alleging Flir Systems hired more than thirty (30) Raytheon employees who took trade secrets and patent information with them upon their departure and used it to Raytheon's competitive disadvantage.

The suit was filed Friday in the United States District Court for the Eastern District of Texas. Raytheon seeks damages, disgorgement of Flir's alleged unjust enrichment, an injunction mandating the return of certain files, and its attorney's fees and costs.

In March of 1996, a high-level Raytheon executive quit and started a company called Indigo, allegedly to provide consulting advice to companies like Raytheon. Raytheon claims that instead of consulting with Raytheon to develop infrared cameras and detectors, Indigo planned to become a competitor of Raytheon and intended to use Raytheon's research and development in the process. The suit alleges "Indigo embarked on a calculated course of action to jump to market by undertaking a systematic effort to hire away key scientists and technicians from Raytheon in each of the critical research and design disciplines where Indigo lacked the knowledge necessary to compete." Flir Systems acquired Indigo Systems in 2004.

Our comment is that this case represents a high-profile "employee raiding" case with all of the relevant elements to make it interesting and a challenge for the court: (a) departure of a significant number of important employees to a single competitor; (b) confidential and trade secret information allegedly in the possession of those departed employees; (c) loss of customers or bids to that competitor; and (d) lots of money at stake.

Monday, March 05, 2007, 3/05/2007 07:46:00 AM

From the Lufkin (TX) Daily News, a story concerning a Texas man sentenced to seven years in prison for stealing trade secrets from a company at which he worked.

Last October, a state court jury found Frank McClain, Jr. guilty of stealing $1.4 in cards and back sheet notes when he quit his job as a technician in 2001 with Didrikson and Associates, a pipeline services company.

According to the article, cards are flat, circuit chip boards used in control panels to operate gas and steam turbine generators at power plants and back sheets are the guides technicians use to repair cards.

A jury found that the notes written on the back sheets by technicians at the company, known as shortcuts to speeding up the repair process, were trade secrets.

The seven-year sentence is much longer than federal defendants typically receive in cases concerning theft of trade secrets.

Friday, March 02, 2007, 3/02/2007 01:51:00 PM

From CNET news.com, a further story concerning HP's case against its former VP of business development, Karl Kamb, and his counterclaim that HP engaged in illegal pretexting to get his phone records. (We reported the story earlier here. HP, of course, has been alleged to have been involved in other pretexting activities in connection with an investigation of leaks from its Board of Directors. Those have been reported extensively elsewhere in this blog.)

In a recent filing, HP contends that it did not engage in pretexting of Kamb's records

The judge has ordered much of this case to be conducted under seal, so our glimpses of what appears to be going on are not necessarily accurate. We'll try to figure it all out.

Thursday, March 01, 2007, 3/01/2007 10:32:00 AM

As many of you know, federal courts are sometimes called upon to resolve disputes between parties located in different states. When they do so, they are often required to resolve issues of state law. One such issue that pops up every once in a while is - "what is the difference between "confidential information" as identified in a confidentiality or nondisclosure agreement and a "trade secret" as defined by that state's version of the Uniform Trade Secrets Act?" Asked another way - "are there any requirements that a company use reasonable efforts to keep "confidential information" truly "confidential" like there are for trade secrets?"

On February 27th, the Seventh Circuit indicated that, under Illinois law, a holder of "confidential information" DOES have affirmative obligations in treating that information in a confidential fashion. The case in which it so held, Tax Track Systems Corporation v. New Investor World, Incorporated, -- F.3d --, 2007 WL 582488 (February 27, 2007 7th Cir.), involved an appeal by one insurance brokerage that had sued another. Plaintiff/Appellant Tax Track had a product called "premium financed life insurance." This kind of life insurance is for very wealthy individuals prepared to pay high premiums. Tax Track put a unique spin on this insurance product and wrote up its spin in a memo called the "Gift Compression Techniques memo." Tax Track kept the memo exclusively on its password-protected computer BUT also gave copies of the memo to 600 or 700 potential customers over a five-year period. Only some of the 600 or 700 recipients of the memo signed confidentiality agreements with Tax Track and the memos were not marked "confidential." In fact, Tax Track could not identify all of the recipients of the memo.

New Investor World teamed up with Tax Track in 2000 to sell "premium financed life insurance." The parties signed a "confidentiality/nondisclosure agreement" between themselves. The agreement had a three-year tail that prohibited New Investor World from using or disclosing confidential information obtained in the relationship were the relationship to terminate. You know what happens next. New Investor World terminated the relationship after just three months - and it had the Tax Track memo. It apparently used that memo to write a memo of its own and called that the "Executive Summary." Tax Track didn't like that and sued. New Investor World obtained summary judgment on the "breach of confidentiality agreement" claim because the court was not convinced Tax Track had used reasonable steps to protect the Tax Track memo. Tax Track appealed.

The Seventh Circuit notes in its opinion that "confidentiality agreements like the one in this case are restrictive covenants and under Illinois law are reviewed with a suspicious eye." It goes on to note that "an Illinois court, in whose place we sit, will enforce such agreements only when the information sought to be protected is actually confidential and reasonable efforts were made to keep it confidential." The appellate court goes on to say "Tax Track need not show its information rises to the level of a trade secret, but it must nevertheless establish that it engaged in reasonable steps to keep the information confidential." It then notes that some disclosure is forseeable and understandable in order to "profitably exploit the information."

That said, the Seventh Circuit agreed with the trial court that "no reasonable jury could find Tax Track took reasonable efforts to keep its memo confidential so as to warrant protection under the restrictive covenant." It did so noting that Tax Track distributed the memo to 600-700 people and sought NDA agreements from only 190 of them at most, Tax Track could not even identify all of the recipients, and it wasn't marked "confidential." The distribution of the memo to the outsiders essentially undermined the retention of the memo on the password-protected computer. The summary judgment was affirmed.

It seems to this outsider that what Tax Track was really arguing for was a limited privilege to disclose "confidential information" to customers and potential customers in a for-profit enterprise without implicating a loss of the confidential status of the information. If that was their implied argument, it was expressly rejected. We often see the argument made that a company's "price list" constitutes "confidential information" of that company. Same thing with bid information. We think the Seventh Circuit has this correct - if a company wants to claim its business materials are "confidential" then they must use affirmative and rigorous means to keep that information confidential in its dissemination. The best way to do this is to bind the recipient to an NDA agreement. Failure to do so may certainly implicate the loss of the "confidential" status of that information vis-a-vis those ubiquitous employment agreements defining everything under the sun as "confidential" information of the company.